Starting a legal crypto business in the U.S.: choosing a state

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State Selection

Today we will talk about choosing a state to start a crypto business and then obtaining an MTL license from the local regulator.

In the last article on the U.S. “The first step in obtaining a crypto license in the U.S. – MSB registration” we wrote about the need to register as an MSB as the first step to a legal crypto business. As stated earlier MSB registration with FinCEN is only one of two legal requirements, once you are registered you are not allowed to offer cryptocurrency services without obtaining an additional state money transmitter license.

A money transfer license is issued in 49 of the 50 states (only Montana does not have a money transfer licensing requirement), and the requirements for obtaining a license vary from state to state. To offer your services in all 50 states – you will need to obtain an MLT in 49 of them.

But there are exceptions New York instead of MTL has a separate license for cryptocurrency companies – BitLicense, regulators considered that the requirements of MTL are not enough, Wyoming on the contrary exempted cryptocurrency services from the need to acquire MTL under certain conditions, and was the first in the U.S. introduced a license for “crypto banks“.

Therefore, choosing a state to open a crypto business in the US depends on various factors, including legal, economic, and tax aspects. Here are the criteria to consider when making your decision:

  • Your audience: if your customers are mainly in New York, getting a Colorado license and serving them is not possible for you, you need to get a license specifically in New York.
  • Cryptocurrency regulation: some states may have more favorable legislation and regulations for crypto businesses.
  • Tax policy: tax incentives and rates can vary significantly.
  • Startup ecosystem: you should research the startup ecosystem and the availability of incubators, accelerators, and technology centers that can support the development of your crypto business.
  • Business Friendliness: you should research the overall business friendliness of the state, including ease of company registration, business community and other factors.
  • Partnerships with financial institutions: you should consider partnerships with financial institutions in different states, as this may affect the availability of banking services for your crypto business.
  • Other factors that are important to you (business culture, etc.).

Wyoming as the most crypto-friendly state

If the Manimama team were asked where we would open our first crypto business in the US, the answer would be obvious – Wyoming! Wyoming has rightfully become the crypto capital of the US, and here are just a few reasons why:

  • The state has developed mechanisms to support local crypto companies.
  • There are more than a dozen different regulations aimed at regulating cryptocurrencies, such as the Wyoming Utility Token Act, which states that the offering (ICO) of utility tokens is exempt from the need to obtain a special license and they will not be classified as securities, although we did not find any precedents for issuing utility tokens, nor did we find the SEC’s reaction to this law.
  • Wyoming was the first US state to adopt a completely new legal framework for decentralized autonomous organizations (DAOs). DAOs can now be legal entities in the state for the first time in the US.
  • Wyoming has no state income tax.
  • Under certain circumstances – crypto companies do not need to obtain a state MTL license to provide cryptocurrency services in the state.

Wyoming provides such licensing options in order to legally provide crypto services within the state:

  • SPDI is actually a banking license that allows you to act as a “crypto bank”. Kraken received such a license, becoming the first license holder. A total of 4 legal entities have received such a license since 2020. The license allows the offering of all possible services related to cryptocurrency. The requirements/cost are much higher than MTL.
  • MTL is a money transfer license. It allows you to offer exchange services from crypto to fiat, back and transfer fiat funds/cryptocurrency to third parties at the request of the client. 

There are other ways to provide cryptocurrency services within the state, such as obtaining a full banking license, setting up a trust, etc.. This article will only cover obtaining a state-level MTL.

MTL license in Wyoming

In the US, only a few states exempt cryptocurrency companies from money transfer license requirements, Wyoming with some exceptions belongs to one of them.

In most cases, cryptocurrency companies should contact state authorities in the jurisdictions in which they wish to operate to fully understand state licensing procedures and general compliance requirements. 

Under the federal law referenced in paragraph 1, 18 USC §1960, businesses are required to register for a money transmitter license if their activities fall within the state’s definition of money transmitter.

In Wyoming, the requirements and process for obtaining a license are defined in the Wyoming Money Transmitters Act (the “Act“) and all required information is contained in the “MTL Application” which is prepared by the Wyoming Division of Banking, Wyoming’s financial services regulator.

Under the Act, “Money Transmission/Transfer” means engaging in the business of selling or issuing instruments of payment or receiving money or monetary value for transmission to any place within or outside the United States by any and all means, including, but not limited to, telegraphic, facsimile, or electronic transfer.

The license is issued by the Wyoming Division of Banking:

  • Money transfer operators;
  • Money order issuers and sellers;
  • Issuers and sellers of travelers cheques;
  • Certain bill payment service providers;
  • Certain escrow companies;
  • Certain foreign currency exchange bureaus.

This license authorizes the following activities:

  • Transmission of electronic funds;
  • Issuance of traveler’s cheques;
  • Sale of traveler’s cheques;
  • Issuing money orders;
  • Sale of money orders;
  • Payment of bills;
  • Issuance of prepaid access/stored value;
  • Sale of prepaid access/stored value;
  • Foreign currency transactions or exchange;
  • Other money transactions.

Exemption from licensing

As seen in the previous section, cryptocurrency activity is not expressly covered by Wyoming’s MTL.

According to the Act (Section 40-22-104): “Buying, selling, issuing, or holding payment instruments in the form of virtual currency or receiving virtual currency for transfer is NOT subject to the Wyoming Money Transfers Law.” That is, an MTL license in Wyoming is not required to perform these services.

Two things are clear under this legislative scheme: (1) the general rule is that a money sender’s license is required to transfer money or monetary value, (2) the receipt and transfer of virtual currency are expressly excluded from the Act and there is no need to obtain a money transfer license. If someone receives and then transfers virtual currency, in Wyoming this can be done freely and without a license.

Thus, after registering as an MSB, a company can immediately offer cryptocurrency services without the need to obtain an MTL. 

However, please note that this rule applies if the company will provide services exclusively in the area of virtual currencies, i.e.: accepting, transferring, exchanging crypto-crypto, custodial services, but in the case of providing crypto-fiat exchange services, on the contrary, accepting fiat, transferring fiat, performing other services involving fiat funds – it is necessary to obtain an MTL. This is explicitly stated in the Application for MTL (page 8 of the document).

The Statement states – The Wyoming Money Transmission Act was amended to exempt virtual currencies from regulation. However, the use of fiat currency and fiat-denominated wallets for the benefit of Wyoming consumers that may be necessary to conduct buy/sell/trade transactions through virtual currency exchanges may be regulated.

If a company engages in services in the area of cryptocurrencies along with fiat currencies, then a “Crypto Questionnaire” should be separately downloaded and completed.

Looking at other crypto companies, do they have licenses in Wyoming?

  • Circle states in its documentation that there is no licensing in Wyoming.
  • Binance US has an MTL in Wyoming.
  • Kraken has an SPDI license in Wyoming.

The following well-known crypto exchanges do not have a license in Wyoming as well as mentioning this state, what they have in common is that they have MTLs in almost all states:

What’s next?

After selecting a state depending on your business requirements, you should apply for an MTL license. The requirements for the license vary from state to state. In the following article, we will look at how to apply for an MTL in Wyoming, what the requirements are, and what the general requirements are for the rest of the US states.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation. 

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